Some parts of Sonoma County have seen a decrease in income over the past year by as much as 20%. At a time when many markets have seen a decrease in income, it’s more important than ever to be in the top 5% of vacation rentals in your chosen niche. In other blog posts, I have covered in detail the income that you can get from different geographic areas and how that compares to the median price of homes (see this blog post). Just doing this analysis shows that Guerneville, Sonoma, and Healdsburg are the strongest markets but there is a lot more to it than that.
With interest rates where they are and the rise in property prices in Sonoma County over the past year, it's no longer the case that you can buy an eligible property and expect the money to start rolling in. In this blog post we challenge some misconceptions about vacation rentals and also share some of our tips on how you can set yourself up for success as a profitable vacation rental host.
If you think running a vacation rental is passive income, it isn’t. Of course, you can outsource the entire process to a third party management company but you will be sacrificing a significant margin. Buying and then launching and running a vacation rental is more like running a business where you are the CEO, CFO, chief operating officer, and call center operator all in one go. You need to really do your research up front not just on the market but on the type of experience that will lead to repeat guests.
If you are looking for a vacation rental property, the easy thing to do is to focus on areas that you know are popular with vacation rental guests. Daniel Rusteen who wrote a good book called Profitable Properties, describes two types of markets. ‘Discovered’ markets and ‘Undiscovered’ markets.
A discovered market is a market that is well-known outside of the local market. For example, Healdsburg in Sonoma County. Everyone knows of Healdsburg as a destination for food and wine lovers. By its very nature, a discovered market will be well known outside of the local market and will have a high flow of visitors.
An undiscovered market for example will have fewer guests visiting but there will also be fewer vacation rentals potentially making the demand for the available properties higher.
In his book, he used Turkey as an undiscovered market. Unbeknown to me, Istanbul is a major destination for people wanting a hair transplant. Properties close to some of the big hair transparent clinics often make a good vacation rental.
Thinking about how this might translate to Sonoma County, I would say that somewhere like Occidental is an undiscovered market for people in the Bay Area. They will know places like Guerneville in the Russian River area but Occidental is a town much less well known and definitely on the rise. It is also a place that attracts a lot of keen cyclists because it is the epicenter of gravel bike riding in Sonoma County so has its own unique appeal among a smaller community. What’s more, it has a much smaller number of vacation rental properties relative to the demand creating strong occupancy numbers.
Once you have identified the right general market using the necessary data then the choice of property will come down to much more subtle but important details about the micro-neighborhood.
If you are buying a home near a local attraction it needs to be near it not a 20 min taxi ride away. If we take the example of buying something in the Russian River then being close to the river or close to a public beach you can walk to will make all the difference. Equally, if you are close to the river but have a 15 minute walk up one of those steep winding streets that is a lot less desirable than a property which is a 15 minute walk along a flat road.
If you are targeting the wine tourist, then a home that is a 5 minute walk to a cute winery is immediately going to increase its appeal. Similarly, if you are targeting a destination town such as Healdsburg, finding a place where you can walk, or that the very least, have a 5 minute ride along an easy road is ideal
One of the big questions I often get asked is what size of home should I buy? While a large part of this is driven by the budget, it is important to do some analysis on the market by looking at the number of properties of a particular size, looking at how many 1-bed vs 2- bed vs 3 bed there and then looking at the occupancy levels, average daily rate and the annual revenue. Doing this analysis, and comparing it against the difference in purchase price, will help you to start to understand the dynamics of the specific market you are targeting.
Aside from the cost of the home and how many bedrooms it has, the home layout and amenities are also really important. Is it an open plan? Are the ceilings high? What are the unique features of the home that will pop up online? An outdoor shower? Is there a convenience store nearby? Are the bathrooms and showers an adequate size? When you are looking at the home you need to look at it through the eyes of your potential guest and think about how you can create the most welcoming space.
Every home can be improved to make it more appealing. That doesn’t mean you need to do a total remodel but choose a space you want to improve. More often than not, the outdoor space is one area that for a relatively small amount of money can be improved by adding some seating, a hammock, a grill or something to make the space feel more appealing.
If you have a small budget to do some interior improvements pick one high-traffic room to improve. It could be the kitchen or the primary bathroom or the bedroom. If you improve one room you can then use that room to create a great cover photo for your listing online.
Another detail that people often forget about is lighting. Changing the lighting can make a big impact on the space. Even adding accent lighting to light a particular feature or making lights dimmable can all contribute to enhancing the feel of a room both online and in real life.
My background is in marketing so while this is obvious to me, it amazes me how often it is overlooked. You need to have a really clear idea of who your potential guest is. It’s just like a company knowing who its customers are and how the product needs to meet their needs.
If we take an example of someone coming to Healdsburg then the obvious target market is to focus on large groups of people who are attending weddings or coming here for bachelorette weekends. However, there are lots of people who travel here on business who work in the wine industry, couples who come here for a romantic anniversary weekend and groups of friends who come here for cycling.
Depending on which profile of guest you are going for you would try to optimize your property for that guest. For some guest profiles, having super high end toiletries in the bathrooms will make the listing stand out, if it is a larger party crowd you are after then have a tiki bar in the backyard could make all the difference.
When a guest is searching for a listing they have already decided where they want to go, so you don’t need to sell the location (unless it truly is unique). You need to sell the lifestyle or sell the experience.
For example, if we were to target cyclists then we might stock the house with snacks for people to take on a ride or set up an arrangement with a mobile Velo service so they can access to a home bike repair service. Providing a series of “ride sheets” or links to great rides in the digital guidebook will all help create a great experience.
If you are targeting guests who want to come to wine country and visit wineries and restaurants why not provide enough bikes (electric or regular) so that they can easily get around and enjoy the area. Alternatively, you could offer for them to have a dinner cooked at home by a local chef service.
Of course, when you advertise your vacation rental you want to communicate all of the amenities but sometimes it is nice for guests to find a nice surprise. The most obvious surprise item is a welcome gift basket that a lot of hosts provide. An alternative is a departing goody bag which could have a local bottle of olive oil from a winery or some chocolates from a local chocolate shop. The great thing about a goody bag is that they will be receiving it at about the time they will be asked to write a review!
Other ideas for a surprise and delight feature for guests would be extra phone chargers (let's face it we all forget charges when we travel!) or a gift card to a local coffee shop or slippers for guests' use. All of these small items don’t cost a lot of money but create a good feeling with guests.
There is no silver bullet to guaranteeing a successful vacation rental but by treating purchasing a vacation rental like setting up a business by doing all the necessary market research and then setting up the property to make sure it delivers the guest experience your potential guests expect you will likely be successful as long as you are prepared to put in the hard work and manage it as you would any business. The good thing is that there are a lot of automation tools out there to create a really slick workflow for communicating with guests and getting a strong base of good reviews.
I would definitely recommend checking out Daniel Rusteens's website as he has lots of resources that will help any would-be vacation rental host to do the upfront research, set up the vacation rental to make it truly stand out, and then manage it to maximize your profits.
If you are interested in learning more about Daniel Rusteen and working with him to create a profitable vacation rental property, there are a number of resources and services he offers:
Some of Daniels Favorite tools are as follows:
Analyzing potential revenue: Alltherooms.com
Messaging Platform: Guesty.com (Basic and pros)
Property Management Platform: Hostfully.com
Pricing Engine: www.pricelapse.com
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